Did you just receive a 1099-K form for the first time? Don’t overlook this form; it’s important to grasp what it entails.

This tax season, many taxpayers will be confused upon receiving a 1099-K. While you may be tempted to discard it, that would be a mistake.

Starting this year, individuals will receive a 1099-K from payment card companies, apps, and online selling platforms if their business transactions exceed $5,000 in 2024.

“How many individuals have sold items online or received payments through apps like PayPal or Venmo?” questions Andy Phillips, vice president of The Tax Institute at H&R Block.

The number is significant, but many may not have received a 1099-K in the past. Phillips explains, this was due to a previous threshold that was much higher.

Previously, the rule mandated sending a 1099-K to those with transactions exceeding $20,000 and more than 200 transactions on third-party processing platforms in 2023 and before.

With the threshold now lowered to $5,000 for 2024, the IRS will now have more documentation to track taxable transactions.

“This year, many people will receive a 1099-K and may be unsure of how to handle it,” Phillips notes.

The threshold is expected to drop further in 2025, meaning you could receive a 1099-K next tax season if you surpass $2,500 in transactions this year.

Common transaction scenarios that might lead to unexpected 1099-Ks include reselling tickets for high-demand events, such as the Taylor Swift Eras Tour, which continued into 2024.

If you sold popular football tickets — like those for the Detroit Lions or Philadelphia Eagles — and surpassed that $5,000 threshold this year, you would receive a 1099-K for tax purposes.

Resale websites like StubHub, Ticketmaster, Etsy, and eBay provide details regarding when they’ll issue a 1099-K. It’s essential to understand what counts as taxable income and what does not.

The American Rescue Plan Act of 2021 redefined the reporting standards for third-party payment networks, initially proposing a 1099-K requirement for any transactions above $600. However, this significant change has not yet been fully implemented.

According to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting in Riverwoods, Illinois, “The IRS has been postponing the implementation.”

The IRS is gradually adjusting the thresholds, as per their statement, to manage the administrative complexities that arise with millions of additional 1099-K forms being issued. This gradual change also gives taxpayers more time to adapt.

Currently, the 600-dollar threshold, mandated by law, is expected to kick in by 2026 for transactions above that amount.

Luscombe suggests that Congress might modify the law before that happens, potentially raising the limit again to prevent an overwhelming number of 1099-Ks from being sent out.

“People should expect to see 1099-K forms that they were not accustomed to receiving before,” says Luscombe.

Trump’s stance on ‘no tax on tips’

Republicans have criticized the IRS for delaying the anticipated influx of 1099-K forms while also calling for the repeal of the provisions from the American Rescue Plan Act that expanded the 1099-K reporting requirements.

Jason Smith, chairman of the U.S. House Ways and Means Committee, released a statement in October questioning, “Will the IRS insulate Democrats from the fallout of their unpopular 1099-K oversight scheme?”

The statement highlighted that gig workers utilize platforms like Venmo and PayPal for services and tips, and lowering the threshold to $600 would place a heavy burden on more middle-income taxpayers.

Smith, a Missouri Republican, expressed concern that this would particularly affect those earning under $200,000 annually.

“This feels like an additional tax on tips, adding unnecessary stress for hairdressers, Uber drivers, and other gig workers merely trying to earn a living,” Smith asserted.

“If even the IRS is hesitant to implement this significant change, it makes sense to repeal it,” Smith stated in October.

On January 25, former President Donald Trump mentioned that a legislative proposal he’s developing with Republican lawmakers will feature a pledge to eliminate taxes on tips.

White House and Republican leaders are discussing using the budget reconciliation process to advance broader proposals, including extending Trump’s Tax Cuts and Jobs Act of 2017, due to expire at the end of 2025, along with a rule to eliminate taxes on tips.

Determining what’s taxable

It’s important to highlight that the IRS states all income, regardless of the amount, is taxable unless excluded by law, whether or not you receive a 1099-K.

However, receiving a 1099-K doesn’t automatically mean that you owe taxes on that income. This issue can often become quite complicated.

You owe taxes on profits, not losses, and a 1099-K merely reflects your gross earnings. Therefore, the amount shown on the 1099-K may not represent your total taxable income.

Taxation is based on profits, meaning you should consider the costs associated with the items you sold online, including tickets for events like those for the Detroit Lions or Taylor Swift.

“Always keep in mind that the number on a tax form isn’t necessarily the full taxable amount,” Phillips cautions.

If you sold an item online, Phillips explains that you likely incurred costs related to it. For instance, if you sold a designer handbag for $200 but paid $500 for it, you would not owe taxes due to a $300 loss on that sale.

Conversely, the IRS points out that if you purchased concert tickets for $500 and sold them for $900, you would generate a taxable gain of $400.

It’s crucial to note that losses from selling personal items aren’t deductible, so don’t expect any tax compensation there.

The IRS has stated that if you run a seasonal craft business and accept payment via cards or apps, you will receive a 1099-K for all gross payments received in that calendar year.

“This reporting guideline for card payments remains unchanged, and there are no minimum reporting thresholds for these transactions,” the IRS clarifies.

Should a 1099-K reflect the sale of a personal item sold at a loss, you’ll need to adjust that in your tax return.

You must report incorrect amounts, or losses from personal items sold, on the top line of Schedule 1 for 2024 returns, above the “Part 1: Additional Income” section.

“This new line on Schedule 1 for entering inaccurate 1099-K data is significant,” Luscombe remarks.

Additionally, third-party networks may not accurately identify whether some transactions are personal or taxable business activities, such as reselling football tickets at a profit versus merely transferring money to a friend for sharing a meal.

“You could receive a 1099-K for a transaction that isn’t even taxable,” Luscombe explains.

For example, if a roommate reimbursed you through a third-party payment system for rent you paid out, this might show up incorrectly on a 1099-K.

It’s essential to not simply discard that 1099-K. Remember, “The IRS has received that information too and will not know it’s non-taxable unless you inform them,” Luscombe warns.

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.